PLAINTIFF UNITED STATES’S RESPONSE TO COMMENTS filed in United States v. SBC Communications, Inc. and AT&T Corp., Civ. Action No. 1:05CV02102 (EGS) and United States v. Verizon Communications and MCI, Inc., Civ. Action No. 1:05CV02103 (EGS) ATTACHMENT 3 Comments of Elliot Spitzer. Attorney General, State of New York, on the Proposed Final Judgments IN THE UNITED STATES DISTRICT COUR T FOR THE DISTRICT OF COLUMBI A UNITED STATES OF AMERICA, Plaintiff, Civil Action No. 1 :05CV02102 v. Judge : Emmet Gt Sullivan SBC COMMUNICATIONS, INC. and AT&T CORP. Defendants. UNITED STATES OF AMERICA, Plaintiff, Civil Action No. l :05CV02103 v. Judge: Emmet G. Sullivan VERIZON COMMUNICATIONS INC . and MCI, INC. Defendants . COMMENTS OF ELIOT SPITZER, ATTORNEY GENERAL, STATE OF NEW YORK, ON THE PROPOSED FINAL JUDGMENTS Pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act, 15 U.S.C . § 16, Eliot Spitzer, the Attorney General of the State of New York, respectfully submits the followin g comments on the Proposed Final Judgments' ("PFJs") in the above referenced matters . ' Department of Justice, Antitrust Division, United States v. SBC Communications Inc . and AT&T Corp.; Competitive Impact Statement, Proposed Final Judgement, Complaint, Stipulation, 70 I . INTRODUCTION The New York Attorney General ("AG") is charged with enforcing state and federal antitrus t and consumer protection laws. The AG advocates in administrative and judicial proceedings on behalf of New York State, consumers, and the public interest generally . The AG has long advocated on behalf of competition in the telecommunications sector in both the national and state legal and regulatory arena. The AG has participated actively in numerous New York Public Servic e Commission proceedings to support competition in New York State and has filed comments ther e as well as at the FCC on a broad range of telecommunications competition issues over the years , including comments with both agencies regarding the proposed Verizon-MCI merger ! Through Verizon New York Inc ., Verizon Communications Inc . ("Verizon") provides regulated and unregulated telecommunications services in New York, and is the dominant provider in multiple service markets from Maine to Virginia . MCI Inc.'s (`MCI") subsidiaries provide telecommunications services on a regulated and unregulated basis in New York and, since before the breakup of AT&T in 1984, MCI has played a key competitive role in business, long distance an d local service markets. While SBC Communications, Inc . ("SBC") has had only a limited competitive presence i n New York, it provides regulated and unregulated telecommunications services and is the dominan t Fed. Reg. 74334 (Dec . 15, 2005); Department of Justice, Antitrust Division, United States v. Verizon Communications Inc . and MCI, Inc. ; Competitive Impact Statement, Proposed Final Judgement, Complaint, Stipulation, 70 Fed . Reg. 74350 (Dec . 15, 2005). Z See,e.g., http://www.oag.state.nv.us/ telecommunications/telecommunications .html. 2 provider in multiple service markets in 13 states .' AT&T Corporation ("AT&T") provide s telecommunications services on a regulated and unregulated basis in New York and is the nation' s largest provider of enterprise services, while also establishing itself as a leading long distance an d local service competitor. Together, MCI and AT&T maintain the most comprehensive local and long-haul facilitie s which are required by major enterprise customers . Since the Telecommunications Act of 1996 , AT&T and MCI have also established themselves as the most successful competitive local exchang e carriers ("CLECs") in New York and nation-wide . Telecommunications are vital to New York's information-intensive economy, which is th e national and global center of the financial services and other major industries . For over a generation , increased competition in telecommunications has been the driving force behind fair prices, hig h quality, innovative offerings and greater access to services . As a result of New York City' s economic preeminence, increased competition for telecommunications services took hold here befor e other parts of the state and country, and has been the most robust . The Tunney Act process can play an essential role in ensuring that strong competition continues in New York and nationwide . While the U.S . Department of Justice ("DOJ") attempts to downplay the role of the Court in reviewing the adequacy of the PFJs, Congress has made this Court the final arbiter of the propriet y of these mergers under the antitrust laws . The Court must "determine that the entry of suc h judgment is in the public interest," and, if it cannot so find, it must reject the PFJ unless mor e adequate provisions are made to protect the public interest . 15 U.S.C. § 16(e). See, e.g., United 3 Although SBC has chosen to adopt AT&T's name following its merger closing, we refe r to the two companies by their pre-merger identities to avoid ambiguity. 3 States v. Microsoft Corp., 56 F.3d 1448, 1458 (D.C. Cir. 1995) ("Congress, in passing the Tunney Act, intended to prevent judicial rubber stamping' of the Justice Department's proposed consen t decree[s]") (reversing district court's rejection of consent decree on other grounds) . Taken together, these mergers will change the face of the telecommunications industry . Post-merger these two companies will overwhelmingly dominate telecommunications markets andwill be in a position to inhibit competition, customer choice and innovation . The remedies contained in the PFJs are unlikely to constrain the merged entities . There are two key areas of concem . First, the PFJs inadequately address local private lines , which are of major importance to business customers . Second, the PFJs ignore the effect of the mergers on Internet access. For the reasons discussed below, this Court should find that thes e mergers are not in the public interest and reject the PFJs . II. LOCAL PRIVATE LINE S As DOJ acknowledges, the mergers will lessen competition substantially for Local Private Lines ("LPLs"), more commonly know as "special access" lines . LPLs are dedicated point-to-poin t circuits, that enable secure high-speed voice and data transfer typically used by businesses and othe r enterprises. LPLs are especially critical for inter-office communications in the financial service s industry, a key component of New York's economy . A. The Mergers Will Eliminate Facilities-Based Competition in the "Last Mile ." The most critical component of an LPL is the "last mile," i .e. the last stretch of the connection from the carrier's network to the commercial building in which the customer is located . As incumbent local exchange carriers ("ILEC"), Verizon and SBC are often the only carriers with access to many buildings . CLECs must lease last-mile access from these incumbents if no othe r 4 provider has gained access to the customer's location, and if right-of-way excavation or building entry costs inhibit the CLEC from constructing a new last mile connection of its own . MCI and AT&T have made the most significant inroads of all competitors to Verizon and SBC in gaining access to commercial buildings, by going through the time-consuming and costly process of laying their own competitive access lines . MCI and AT&T also lease last mile facilitie s from the ILECs to reach customers in buildings not reached by any CLEC . In many buildings in major commercial centers nationwide, MCI and AT&T have become key competitive carriers, wh o offer customers seeking LPL service a choice other than the incumbent ILEC . Entry into the retai l special access market by CLECs other than MCI and AT&T, via laying their own last-mil e connections, is negligible. This retail competition by MCI and AT&T will be eliminated by th e mergers . B. The Mergers Will Eliminate Discounted "Last Mile" Wholesale Leasing . The ILECs lease bundled long-haul and last-mile LPL facilities to CLECs at significant large - volume discounts, which only AT&T and MCI can take advantage of because of their scale an d ability to make longer-term purchase commitments . Thus, MCI and AT&T have also been essentia l players providing competition in the wholesale market for last mile access . MCI and AT&T hav e acted as price constrainors on the ILECs . MCI and AT&T have also resold the incumbent ILECs ' last mile access to other, smaller CLECs at discounted rates . Without this secondary wholesale market offered by AT&T and MCI, smaller CLECs will no longer have access to these discounte d prices. 5 C. The Remedy Proposed By The PFJ for The "Last Mile" Is Inadequate . In order to preserve some competition in the retail market for last mile access, the Verizon - MCI PFJ requires Verizon to divest a minuscule number of MCI-owned telecom facilities i n individual buildings where MCI is the only telecom provider besides Verizon with last-mile connections in the building . Likewise, SBC would have to divest certain AT&T assets accordin g to a similar scheme. These minimal divestitures will affect only a handful of buildings in majo r markets – a mere 17 in all of New York City, and only 38 buildings throughout all of New York State. Although Verizon and MCI are competitors in many hundreds of buildings in New Yor k State, DOJ has used an unduly narrow permissive screen, which results in only 38 building s receiving limited divestitures to address adverse competitive effects of the mergers . DOJ is missing the forest for the trees . As a threshold matter, an individual building canno t plausibly be a geographic market for antitrust purposes . Indeed, here, the buildings are simply scattered commercial locations amidst MCI's existing network in New York City and statewide . They do not, themselves, form the critical mass needed to build a network.